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The Ultimate Guide to the Federal Money Laundering Statute

Federal Money Laundering Statute

Money laundering is a serious federal offense. Financial institutions and other businesses implicated in money laundering schemes can face substantial fines, while individuals convicted under the federal money laundering statute can face both fines and federal prison time. With these risks in mind, entities and individuals facing allegations under statute need to have a clear understanding of what the statute prohibits (and what it doesn’t), and they need to work with experienced defense counsel who have the resources and capabilities required to take on the U.S. Department of Justice (DOJ).

Congress enacted the federal money laundering statute in 1986 in response to growing concerns related to organized crime and the illegal drug trade. While the DOJ still uses the statute to target these concerns, the statute’s breadth allows for prosecution in a wide range of other cases as well. Today, it is not uncommon for businesses and individuals to face federal money laundering charges in connection with all types of federal white-collar crimes—from government contract fraud and healthcare billing fraud to securities fraud, tax evasion, and public corruption.

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Dr. Nick Oberheiden
Dr. Nick Oberheiden

Founder

Attorney-at-Law

Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney

Partner

Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

The Federal Money Laundering Statute (18 U.S.C. Section 1956): An Overview

The federal money laundering statute (18 U.S.C. Section 1956) broadly prohibits transactions that are designed to conceal the source of funds obtained through criminal activities. While the statute uses the term “specified unlawful activity,” the definition of this term is so broad that it encompasses nearly all federal white-collar crimes.

There are three main operative provisions in 18 U.S.C. Section 1956. The first focuses on individuals and entities engaged in concealing transactions, while the second and third broaden the statute’s reach to allow for prosecution in a wide range of circumstances:

1. 18 U.S.C. Section 1956(a)(1)

Under 18 U.S.C. Section 1956(a)(1), individuals and entities can face prosecution for conducting (or attempting to conduct) a transaction that conceals the source of ill-gotten gains. This portion of the federal money laundering statute states:

“Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity—(A)(i) with the intent to promote the carrying on of specified unlawful activity; or (ii) with intent to engage in [tax evasion]; or (B) knowing that the transaction is designed in whole or in part—(i) to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity; or (ii) to avoid a transaction reporting requirement under State or Federal law, shall be sentenced [in accordance with the statute].”

As you can see from this statutory language, knowledge and intent are key elements of the DOJ’s case in a federal money laundering prosecution under 18 U.S.C. Section 1956(a)(1). Not only does this provision of the statute require knowledge that the property involved in a transaction represents the proceeds of illegal activity, but it also requires either: (i) intent to promote unlawful activity or engage in tax evasion; or, (ii) knowledge of the transaction’s unlawful purpose.

Since this provision of the statute covers both intentionally attempting to launder or conceal illegal funds and knowingly facilitating money laundering transactions, it allows the DOJ to cast a wide net. Prosecutions under 18 U.S.C. Section 1956(a)(1) are common; and, as discussed below, defendants involved in all aspects of illicit transactions can face steep penalties under this section of the federal money laundering statute.

2. 18 U.S.C. Section 1956(a)(2)

Under 18 U.S.C. Section 1956(a)(2), individuals and entities can face prosecution for using cross-border transactions to conceal the source of proceeds from “specified unlawful activity.” This section of the federal money laundering statute states, in pertinent part:

“Whoever . . . transmits, or transfers, or attempts to . . . transmit, or transfer a monetary instrument or funds from a place in the United States to or through a place outside the United States or to a place in the United States from or through a place outside the United States—(A) with the intent to promote the carrying on of specified unlawful activity; or (B) knowing that the monetary instrument or funds involved in the transportation, transmission, or transfer represent the proceeds of some form of unlawful activity and knowing that such transportation, transmission, or transfer is designed [to facilitate money laundering] shall be sentenced [in accordance with the statute].”

This section of the statute differs from 18 U.S.C. Section 1956(a)(1) in that it is not limited to prohibiting “financial transactions.” By prohibiting all cross-border transmissions and transfers, 18 U.S.C. Section 1956(a)(2) covers scenarios in which a target does not transact business with a third party. Using offshore bank accounts and setting up companies in offshore tax havens for money laundering purposes can trigger prosecution under this section of the statute—even if the use of the account or corporate structure is set up legally and has the potential to be used as part of a legitimate tax mitigation or asset protection strategy.

3. 18 U.S.C. Section 1956(a)(3)

The third operative section of the federal money laundering statute widens the DOJ’s net even further by allowing for the prosecution of any individual or entity involved in a financial transaction that involves property “represented to be the proceeds of specified unlawful activity” or “used to conduct or facilitate specified unlawful activity.” To secure a conviction under 18 U.S.C. Section 1956(a)(3), the DOJ must prove that the defendant conducted or attempted to conduct a prohibited transaction either:

  • With the intent to promote specified unlawful activity;
  • With the intent to conceal or disguise the “nature, location, source, ownership, or control of property believed to be the proceeds of specified unlawful activity;” or,
  • With the intent to avoid transaction reporting requirements (i.e., the requirement under the Bank Secrecy Act (BSA) to report transactions in excess of $10,000).

As intent is a key element of the DOJ’s case in a prosecution under 18 U.S.C. Section 1956(a)(3), challenging the DOJ’s evidence of intent will often be a key defense strategy as well. We cover defense strategies in cases prosecuted under the federal money laundering statute in greater detail below.

Penalties Under the Federal Money Laundering Statute

All three operative provisions of the federal money laundering statute impose substantial penalties. Under 18 U.S.C. Sections 1956(a)(1) and (2), defendants can face fines of up to $500,000 or twice the value of the property involved in the subject transaction (whichever is greater) and up to 20 years of federal imprisonment. Under 18 U.S.C. Section 1956(a)(3), individual defendants can face up to a $250,000 fine and 20 years of federal imprisonment, while corporate defendants can face a fine of up to $500,000.

Section 1956(b)(1) also provides for the imposition of civil fines in some cases. Under this section of the federal money laundering statute, individuals and entities can face fines of $10,000 or the value of the property involved in the subject transaction (whichever is greater).

The federal money laundering statute also gives federal judges the authority to freeze defendants’ assets; and, in appropriate cases, the court can appoint a federal receiver “to collect, marshal, and take custody, control, and possession of all assets of the defendant.”

Defenses to Prosecution Under the Federal Money Laundering Statute

Like all federal white-collar crimes, there are several potential defenses to charges under the federal money laundering statute. But, also like all other federal white-collar crimes, the defenses that are available in any federal money laundering case depend heavily on the facts and circumstances involved.

With this in mind, some examples of potential defenses to charges under 18 U.S.C. Section 1956 include:

  • Lack of Knowledge or Intent – As noted above, knowledge and intent are key elements of the DOJ’s case under the federal money laundering statute. If a defendant (or the defendant’s counsel) can show that the DOJ’s evidence of knowledge or intent is lacking, this alone can be enough to stave off a conviction.
  • Constitutional Violations During the Government’s Investigation or Prosecution – Unconstitutional searches, seizures, interrogations, and trial practices can all give rise to defenses in federal money laundering cases. These constitutional violations can (and often do) arise at all stages of the prosecutorial process.
  • Procedural Defenses Based on the Federal Court Rules – When facing federal white-collar charges, it is imperative to defend by all means available. In many cases, this will involve exposing procedural miscues that entitle the defendant to relief in court.

Again, these are just examples. While these (and other) defenses can provide full protection from criminal culpability in some cases, in others they may serve as leverage for plea deal negotiations. Ultimately, determining which defenses a defendant has available—and the best way to use them—requires the advice and representation of experienced federal defense counsel.

Contact the Federal White-Collar Defense Lawyers at Oberheiden P.C.

If you need to know more about defending against federal money laundering charges under 18 U.S.C. Section 1956, we encourage you to contact us for a complimentary consultation. To speak with a senior federal white-collar defense lawyer at Oberheiden P.C. in confidence, call 888-680-1745 or request an appointment online today.

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